Cross-posted from Medium
We are in an economic race between two futures: a high-growth economy that works for all of our people or an economy that marginalizes many of us. I believe that the first choice, what I call “the good economy,” is attainable, but we have work to do to get there.
The distinguished economist Robert Gordon argues in his new book, The Fall and Rise of American Growth, that the long-run growth prospects for the U.S. economy are somewhere between bleak and dismal. He bases this conclusion on his judgment that we face a long-term, perhaps permanent, reduction in economically significant innovation. Professor Gordon looks in detail at the current era of technological change and concludes that its best days are over, and in any case were never as significant as the earlier Industrial Revolutions.
I disagree. In The Good Economy, a newly published e-book from the Roosevelt Institute and the Kauffman Foundation, I, along with my co-authors Robert Litan and Dane Stangler, argue that today’s technological change is every bit as significant as earlier eras of change. And just as those earlier periods created decades of industrial revolution in their wake, today’s change is forcing the rapid evolution of a new business system.
A central conclusion to our argument is that a much slower, less dynamic, sclerotic version of today’s economy is not possible. Today’s technology revolution is real, and the disruptive forces of that revolution are continuously battering and changing every sector of our economy. The economy that results may wind up being better or worse than today, but we don’t get to choose the slower, more sedate version of today’s economy that pessimists foresee.
Our real choice—and the race we are in—is between what we call the Good Economy and something far worse.
In the dystopian future, the information technology revolution will roar on, industry disruption will be very high, and a few first movers will win big (Google, Amazon), but overall, incumbent major companies will use scale and lobbying power to beat back newer, smaller, faster-growing entrants. In this world, startups will decline, labor market participation will fall, economic dynamism will virtually disappear, and inequality of income and wealth will increase.
We believe Tyler Cowen’s book Average Is Over is prescient. In that dystopian world, machine capabilities and machine intelligence rise and economic dynamism does not, causing 85 percent of the labor force to lose its economic role. Their productivity cannot keep up with the machines. Cowen observes the following:
I imagine a world where, say, 10 to 15 percent of the citizenry is extremely wealthy and has fantastically comfortable and stimulating lives, the equivalent of current-day millionaires, albeit with better health care. Much of the rest of the country will have stagnant or maybe even falling wages in dollar terms …
In the Good Economy, technological change will also roar on; industrial disruption will be a constant. But the response to these disruption waves will be different—less dominated by incumbents, more entrepreneurial. We will see the emergence of a high-tech artisanal economy and the rise of a gig economy that works. Because the incumbents will not stifle new companies, there will be room for an enormous growth of smaller companies adding value to basic products and services. Therefore, business formation can grow, labor force participation rise, economic dynamism increase, and inequality decline as opportunity increases.
But we won’t reach that future on autopilot. The next president and his or her successors will have to ask fundamental questions: How do we increase business dynamism? How do we reduce the enormous powers of incumbency? How will all our citizens learn to cope in the next economy? Can we decentralize more power to our cities?
The policy agenda these questions suggest is not really high on either party’s current list of priorities. That agenda would involve difficult, uncomfortable change, but not multiple massive government programs. It sees economic dynamism, entrepreneurs, and business formation as integral to winning this race. It shifts emphasis and action to America’s grassroots. It embraces increased opportunity, security, and equity as necessary aspects of the Good Economy.
We understand that it may appear delusional to suggest a transformative, future-oriented policy agenda in the midst of the least substantive, most bizarre presidential campaign in many, many decades. But after this protracted experiment in magical thinking fails, the voters might be ready for a positive vision, and leaders might be willing to raise new ideas.
Also published on Medium.